Molina Healthcare Inc. was a family business for 23 years until it went public three years ago, growing the firm but also putting it under Wall Street's thumb.
In 1980, family patriarch C. David Molina, a teacher-turned-physician, mortgaged his home to start Molina Healthcare. Nine years later, he would take over the clinics he had walked away from in the 1970s.
The company is a Medicaid HMO health plan provider for low-income families and individuals in 22 urban markets across eight states. With revenues of $1.6 billion in 2005, the company ranked No. 4 on Hispanic Business magazine's 500 list and was No. 69 in the 100 Fastest-Growing Companies list.
The decision to take the company public came seven years after Mr. Molina died in 1996. All five of his children had, at one point, worked for the firm and helped the business grow, but then several competing needs arose. Some siblings wanted out of the business, and as the company grew in value, so did the tax liability. And lastly, the firm needed to expand.
"We needed to take money out of the business, but also needed money back into the business," says John Molina, chief financial officer and the founder's youngest son.
The family explored other options. Taking on a single partner was something the family was very reluctant to do, given the history their father had with previous investors during a first attempt to establish a string of clinics in the 1970s.
"He didn't agree with how they ran the business," John Molina says. "That lesson stayed with him, which is, you've got to pay attention to who's investing in your company."
Private equity was not a real consideration because the risk of losing complete control of the company was too great.
The family also explored a leveraged recap, but then decided against it.
The family agreed that going public was the best option – they could tap into the public markets to get the capital they needed to continue growing the business, and family members could sell stock to get money for themselves. The family currently has voting control of the company.
The Molinas chose Banc of America Securities to underwrite the deal, then John and his older brother Mario, the company's chief executive and a physician, spent a taxing two weeks touting the IPO in an investor road show that took them to cities across the United States.
"It was a whirlwind," John Molina says. "We probably had 80 to 90 meetings in the course of 10 days."
The price of the stock rose from $17.50 to $20.30 on July 2, 2003, its first day of trading. They used the $120 million raised to acquire health plans in four additional states. A secondary offering in 2004 raised an additional $47 million. The acquisitions have ramped up membership and revenues. As of September, Molina Healthcare membership had more than doubled to 1.15 million since the 2003 IPO and revenues have more than doubled.
Being publicly traded also leaves the company open to the vicissitudes of the stock market. Molina Healthcare lost nearly half its capitalization in July 2005 after restating its guidance, and it took an 8 percent hit in January when its increasing earnings weren't as good as Wall Street expected.
And, with a public company, there comes more work. John and Mario Molina are now spending a considerable amount of time on investor relations. But the rewards are worth it.
"I think for our family it was the best way to accomplish the goal of getting money, to grow the business, and give the family some control of their shares," John Molina says. "So, it was the best result."
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